Parent LLC Vs. Stand-Alone LLC

By Tom Streissguth

A limited liability company protects its members from liability for business debts. The LLC also provides a simple tax life for members: the company is not taxed separately and passes income directly to the members, who report earnings on their personal tax returns. One LLC can own another LLC -- or several of them -- as a subsidiary. There are upsides and downsides to these arrangements that members should consider.

Parents and Subsidiaries

A stand-alone LLC has no parents or subsidiaries of its own, while a parent LLC has subsidiaries. The purpose of a subsidiary relationship is to protect one business unit from legal or financial problems in another. If the parent unit does not take an active role in the day-to-day operations of the subsidiary, for example, then any claims against the subsidiary should only affect that division of the organization. If a subsidiary turns unprofitable or runs into financial trouble, it can be wound up and disbanded while leaving the parent, and other subsidiaries, unaffected.

Subsidiary Operations

Setting up subsidiary LLCs is easier, in terms of regulation and legal filings, than setting up affiliated corporations. A parent LLC also has flexibility and options in operating its business through a subsidiary. The parent can lease equipment, operate manufacturing facilities, buy and sell real estate, loan money, and set up a sales network, all through a subsidiary company. By writing up operating agreements with the subsidiary, the LLC parent also can define the exact nature of the relationship, making it easier to defend itself from any creditor claims against subsidiaries.

Ready to start your LLC? Start an LLC Online Now

Standing Alone

A stand-alone LLC benefits from a simpler corporate structure than a parent/subsidiary structure. The single LLC only needs to register once, and renew annually, with the state agency that registers businesses and clears business names. Financial statements and bookkeeping are streamlined, and the simpler structure makes it easier to negotiate with banks for loans, handle insurance needs, file taxes and market the business.

The Series LLC

Some states allow the formation of a series LLC, a single business that functions in the same way as a "holding company." The series LLC sets up separate divisions through changes to the company's operating agreement, not by setting up entirely new LLCs as subsidiaries. A real estate investment firm, for example, may structure a series LLC to handle separate lines of business: apartments, single-family homes and business property. For liability purposes, the assets of one division are protected from claims against another. Not all states recognize this structure, however, and the tax treatment of such a business would be considerably more complex than for a stand-alone LLC.

Ready to start your LLC? Start an LLC Online Now
Is the Parent Company Liable When an LLC Is Sued?


Related articles

What Is the Purpose of an LLC?

The purpose of an LLC is to allow one or more people to operate a business and have liability protection along with certain tax advantages. Another purpose of an LLC is to give business owners an entity that is flexible and easy to maintain, while requiring fewer formalities than other business entities, such as corporations.

How to Use an LLC for Vehicle Ownership

A limited liability company, or an LLC, is a business structure that protects the owners, or members, from liability for the business' debts, while avoiding some of the formalities and negative tax consequences of a corporation. Since LLCs and other businesses are considered legal entities, they can own vehicles in the same way that an individual owns a vehicle.

Difference Between a Franchise & a Corporation

Many chain restaurants, hotels and retail stores are owned as franchises, meaning the parent company provides permission for the local owner to use the parent company's name and products. A franchise can be owned as a corporation, sole proprietorship, limited liability company or other business structure.

LLCs, Corporations, Patents, Attorney Help

Related articles

The Advantages of a Subsidiary Corporation

A subsidiary is a separate legal entity owned in whole or in part by another entity. Common forms include limited ...

How to Create a New Company or Subsidiary of an Existing Company

An existing company, or parent, can create a new company as an independent subsidiary at any time with the approval of ...

General Partnership Vs. LLC

Choosing a proper business structure is one of the crucial steps encountered by owners in the initial stages of ...

How Do I Create an LLC Subsidiary?

Owners of companies with multiple departments and diverse investments may benefit from setting up a parent-subsidiary ...

Browse by category
Ready to Begin? GET STARTED